In December 2022, the department of Innovation, Science and Economic Development (ISED) announced a new bill to amend the Investment Canada Act (ICA). The proposed amendments address evolving national security concerns and aim to better align the Act with changing global dynamics. Overall, this bill represents the most significant update of the ICA and its administration in more than a decade.

iAffairs Canada sat down with Andréa Daigle, Communications and Media Relations Advisor at ISED, to discuss the importance of the ICA, the new amendments, and their implications for foreign investment in Canada

A copy of the official news release announcing the bill can be found on the Government of Canada website here:

Foreign investment is a significant contributor to Canada’s long-term economic prosperity. In short, what role does the ICA play in helping ensure that Canada can attract needed, “positive” foreign investment?

Canada’s foreign investment review regime ensures certainty and provides transparency to Canadian businesses and foreign investors as they plan their growth and investment strategies. Every investment is considered in a case-by-case manner, subject to both “net benefit” economic considerations and for national security risk.

Net benefit reviews are triggered when the value of a Canadian business being acquired is above the relevant threshold. The Minister carefully considers a number of factors in determining whether the investment is of net benefit, including the effect on economic activity in Canada, participation by Canadians in the business, productivity and competition.

The Prime Minister’s December 2021 Mandate Letter to the Minister of Innovation, Science and Industry includes a directive to “strengthen the national security review process and better identity and mitigate economic security threats from foreign investment.” How do the proposed amendments to the Investment Canada Act (ICA) address this directive?

Collectively, the proposed amendments represent the most significant legislative update of the ICA since 2009, when the national security review provisions were first introduced. The proposed amendments enhance the transparency and clarity of national security reviews, and seek to ensure reviews are efficient and effective, introducing new Ministerial authorities to that end.

For example, the amendments will allow the Minister of Innovation, Science and Industry to order the continued national security review of a file, rather than requiring a Governor in Council (GIC) order at this stage. Simplifying the administrative process without extending review timelines will help reviews move forward to a conclusion quickly and meaningfully.

The amendment will also allow the Minister to accept undertakings to mitigate national security risks. This new authority will allow for a nuanced assessment of potential harm to Canada while facilitating investment in Canadian companies.

Other amendments take new strides in strengthening the Government’s insight into anticipated investments before any national security harm can occur. Under the proposed amendments, investors will be required to submit a filing in advance of implementing an investment where sensitive technology, data or infrastructure would be involved. This provides the Government with earlier visibility on investments for which the foreign investor would have gained material access to sensitive assets, or information immediately upon closing, ensuring that such irremediable harm, which could have implications for Canada’s national security, does not occur.

The new interim conditions authority allows the Minister to impose interim conditions on an investment in the course of a review itself. Conditions could include such terms as preventing information-sharing between the Canadian business and the non-Canadian entity on sensitive technology. This effectively prevents the irremediable loss of Canadian assets before the review is complete, and reduces the risk of national security injury. At the same time, they allow the Canadian business to continue to operate with minimal impact.

The modernization of the ICA comes at a time of shifting geopolitical and strategic concerns, where foreign state and non-state actors seek to undermine the rules-based system. In this context, how can hostile actors utilize investments as a vector for foreign influence?

Economic-based threats to national security are an area of increasing concern for Canada and our allies. Canada’s rich innovation eco-system is one of our strongest assets.

The Government has outlined areas of particular concerns from this perspective in the 2021 updated Guidelines on National Security Review of Investments. These assets include sensitive goods and technologies (including select critical minerals), critical infrastructure; and sensitive personal data.

In announcing the amendments, Minister Champagne highlighted a series of sensitive sectors including critical minerals, AI, quantum computing, information, and biotechnologies. How does the bill address the risks associated with foreign investment in sensitive sectors?

Two important provisions address the risks associated with foreign investment in sensitive sectors or that involve intangible assets such as IP, trade secrets, and technological know-how.  

The first is the amendment requiring foreign investors to file notifications for investments in sensitive sectors prior to implementing the investments, even if the investment is not a controlling one. This requirement will avoid a situation where a sensitive technology asset (such as data sets or trade secrets) cannot effectively be recovered from the investor even if a divestiture is eventually ordered, or if the investment is permitted on the condition of not transferring certain sensitive technology or data.

The second is the amendment introducing a new authority for the Minister to impose interim conditions on an investment to reduce the risk of national security injury that could occur during the review. This will ensure sensitive assets are not transferred during a review, protecting against irremediable harm as the review process is completed.

The amendments, among other things, would allow the Minister of Innovation, Science and Industry to share information about investors with allies. Within the context of foreign investment reviews, how might cooperation with international counterparts help mitigate national security threats?

Canada and its allies share similar national and economic security concerns. This amendment will allow for more direct information-sharing by the Minister with international counterparts to support national security assessments, helping Canada and international partners (such as Five Eyes) protect against national security risks that arise from the same or similar investments. For example, a hostile investor might be active simultaneously in several jurisdictions seeking the same technology. The new provision would not obligate Canada to share such information where there are confidentiality or other concerns.

How do the proposed amendments balance protecting Canada’s national and economic security interests while ensuring an attractive environment for inbound foreign investment?

These amendments aim to strike a balance between mitigating national security risks and maintaining Canada’s economic competitiveness and prosperity. Canada’s technologically advanced and open economy, skilled workforce, and world-class research community make it an attractive target for foreign hostile states and non-state actors.

The Government has observed persistent and sophisticated state-sponsored threat activity and continues to see a rise in the frequency and sophistication of such threats to Canada’s economic security. The amendments to the ICA add clarity and transparency while providing additional tools to protect Canada’s national security interests.

Finally, Bill C-34 had its first reading in the House of Commons on December 7, 2022. What are the next steps before the proposed amendments to the ICA can be implemented?

The bill will advance through the Parliamentary process, including moving to second reading and an anticipated referral to consideration by one of the Parliamentary Committees, then third reading, Senate consideration and royal assent.

Several of the proposed amendments will require regulatory provisions be created or amended, including changes to the formula for calculating penalties for noncompliance, as well as the definition of prescribed sectors and business activities that will require a pre-implementation filing. This regulatory process will include consultations and will be posted in the Canada Gazette prior to coming into force.

Catherine Monteith-Pistor is an MA candidate at the Norman Paterson School of International Affairs, where she specializes in intelligence and data science. She completed her undergraduate degree in Media Studies at the University of British Columbia. Her current studies focus on the application of emerging technological capabilities within the context of national security. She has experience working as a student for the House of Commons as well as the federal government of Canada.

Photo Credit via Wikimedia Commons

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